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Vocus gets green light to take Nextgen in $700 million deal

Vocus gets green light to take Nextgen in $700 million deal

ACCC approves proposed acquisition

The Australian competition watchdog has given the green light for Vocus Communications (ASX:VOC) to follow through on its proposed $700 million acquisition of Nextgen Networks.

The Australian Competition and Consumer Commission (ACCC) said on 22 September that it would not oppose the deal, stating that the services supplied by each company are largely complementary.

“Where there was overlap, the ACCC considered the combined competitive constraint from other major wholesale suppliers, namely Telstra, Optus, and TPG, would likely be sufficient to limit any harm to competition,” the ACCC said in a statement.

According to ACCC chairman, Rod Sims, the broader market has expressed little concern over the proposed acquisition, while the post-acquisition entity’s stature in the local market is has been deemed as unlikely to hamper competition in the sector.

“There was very little concern raised by market participants,” said Sims. “Small broadband providerssay they are not generally reliant on Nextgen to be able to compete.

Australian Competition and Consumer Commission chairman Rod Sims.
Australian Competition and Consumer Commission chairman Rod Sims.

“In addition, excess capacity in the wholesale transmission market provides an incentive for providers of wholesale transmission to sell that capacity, even if they are vertically integrated,” he said.

The two companies struck a deal in June, entering into a binding agreement for the acquisition, which is expected to add 17,000 kilometres of fibre cable to Vocus’ infrastructure portfolio.

According to Sims, the ACCC took into account that Nextgen remains the only significant supplier of wholesale transmission services in the local market that isn’t vertically integrated.

“What the ACCC really had to consider here was whether the acquisition has the potential to make it harder for smaller broadband providers to compete if they have to acquire wholesale services from competitors that are vertically integrated,” Sims said.

The acquisition remains subject to further conditions, and says that will work with various stakeholders to meet the conditions and it anticipates the transaction will be completed in October this year.

“We are extremely pleased with the announcement from the ACCC and will move as quickly as possible to close the transaction and integrate the business under the Vocus umbrella," said Vocus CEO, Geoff Horth.

"We will be working to ensure that we leverage the benefits under our expanded infrastructure platform and increased scale across our customer base.

“We look forward to welcoming the Nextgen team into Vocus as we move into the next exciting phase of growth in the business.”

Following the acquisition, Vocus intends to expand its connection points to the National Broadband Service (NBN), from 68 to 112 – out of a possible 121 NBN points of interconnect across the country. This is expected to provide additional wholesale options for smaller broadband providers at those points of interconnect, potentially offering access to a broader bundle of products.

For its part, the ACCC intends to keep a close eye on competition in the local telecommunications industry, especially in light of recent consolidation, such as TPG’s acquisition of iiNet, and the increased vertical integration that has come with it.

According to the ACCC, the four largest retail service providers in the country – Telstra, Optus, TPG, and Vocus, respectively – supply over 90 per cent of broadband services in Australia, with Telstra alone claiming close to half of the country’s NBN subscriptions.

According to nbn, the company building the NBN, it had approximately 1.1 million subscribers to the network, as of June 30. Of these, at least 500,000 were through Telstra, according to the telco’s report for the financial year ending 2016.

The ACCC’s approval of the acquisition comes as Vocus CFO, Rick Correll, tenders his resignation from the company. On 21 September, Vocus told shareholders that Correll would remain with the company for a few months while it searches for a replacement.

“His [Correll’s] contribution has been instrumental in creating a strong business platform with significant growth opportunities in its core target markets, well positioned to continue to generate excellent returns to shareholders,” said Vocus chairman, David Spence.

The company’s share price was $6.09 at the time of writing.

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Tags Rod SimsacccDavid SpenceNextgenVocustelecommunications services

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